Summary
Regulation implements a 3% federal excise tax on various communications services (toll telephone, telegraph, teletypewriter exchange, wire services) and indoor tanning services under 26 U.S.C. §4251. It defines taxable services, calculates tax on prepaid telephone cards via complex face value formulas, establishes collection responsibilities, and lists exemptions (news services, Red Cross, international organizations, combat zone calls). The general telephone service tax was terminated in 1965, but the tax remains on other enumerated services.
Reason
This excise tax is a destructive, regressive hidden tax that distorts communication markets, imposes compliance costs exceeding revenue, and represents federal overreach into what belongs to state/taxing authority under federalism. The PTC face-value rules create perverse incentives and complexity for small retailers. Even if revenue were needed, this tax achieves it through harmful means: raising prices, reducing usage of essential services, and protecting incumbents via barriers to entry. The tax's original 1960s rationale is obsolete in today's competitive telecom landscape. The regulation's administrative labyrinth exemplifies Hayek's warning that rules become too complex for citizens to know the law.